Raytheon Technologies on Tuesday posted higher sales and net income in the third quarter driven by a rebound in the aftermarket business for commercial aircraft and strong results in its defense businesses, leading the company to boost its earnings outlook for this year.
Net income of $1.4 billion, 93 cents earnings per share (EPS), was up more than 500 percent from $264 million (17 cents EPS) a year ago. Adjusted earnings, which exclude acquisition related accounting adjustments, and to a lesser extent debt retirement and restructuring costs, were $1.26 EPS in the quarter, topping consensus estimates by 17 cents per share.
Sales increased 10 percent to $16.2 billion versus $14.7 billion a year ago with all of the growth organic.
Growth in the quarter was led by the Pratt & Whitney engine business, which was higher due to the commercial sales in the aftermarket and passenger aircraft business, and also benefited slightly from an uptick in sustainment for F-135 engines that power the F-35 fighter jet.
Sales were also up at the Collins Aerospace segment related to commercial aftermarket support and the Raytheon Missiles and Defense Segment due to growth on an international National Advanced Surface to Air Missile System and the Advanced Medium-Range Air-to-Air Missile program.
Income gains were driven by commercial aftermarket at the Collins Aerospace segment and a swing to profit at Pratt & Whitney, also due to improvements in the commercial aftermarket. RTC’s defense businesses also enjoyed double-digit percentage increased in operating income due to improved productivity and higher sales.
Raytheon will have about $350 million in lower defense sales this year, about $275 million of which will eventually be recovered, Greg Hayes, the company’s chairman and CEO, said on an earnings call. The U.S. military withdrawal from Afghanistan is responsible for $75 million of the lost sales through services to the U.S. and Afghan governments and won’t be recovered, he said.
Hayes described the $275 million in lost sales as supply chain and workforce issues. Raytheon hasn’t been able to hire enough new employees, which impacts revenue, he said. Supply chain issues are also preventing the receipt of raw materials and components, which can’t be billed to customers until they arrive, he added.
Hiring issues represent about one-third of the lost defense sales and the supply chain disruptions the rest, Hayes said. Lead times for some raw materials have doubled, he said, adding that logistics have also become a challenge with having trucks picking up and delivering materials. Suppliers are also facing labor shortages, he said.
President Biden’s Dec. 8 vaccine mandate for federal contractors is likely to add to near-term supply chain pressures. But in the long-term, as vaccine rates increase, this will boost confidence in the safety of air travel, Neil Mitchill, Raytheon’s chief financial officer, said on the earnings call.
A drop in production rates for Boeing’s 787 commercial airliner has also significantly impacted sales expectations this year, Mitchill also said.
Backlog at the end of the third quarter stood at $156.1 billion, up 4 percent from $150.1 billion at the end of 2020. Defense work accounts for $65 billion of the backlog, down $200 million from the end of 2020.
Raytheon acquired two companies during the third quarter, FlightAware and SEAKR Engineering, and Hayes said these are the types of deals the company will continue to make, particularly to enhance current offerings in software and space systems. The company continues to review its portfolio for potential divestitures of lower margin, lower growth businesses, he said.
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